Despite favourable macro trends with US corporate tax reform, buoyant housing market, and an otherwise very robust M&A environment, the E&C sector has lagged the broader market. Overall M&A activity in Q2 2018 deal value increased 2% versus Q1 2018 despite a decrease in volume in the current period. On year-over-year basis, Q2 2018 continues to lag the same period in 2017 with a negative M&A activity growth of -16%.
The rise in building material prices due to the turbulent trade policies is likely to further challenge potential buyers as sellers face new profitability pressures. Amidst these tensions, inorganic growth is expected to increase within borders while a weakening dollar will possibly make US companies potential targets. Finally, skilled labor shortages would drive more consolidation as companies will look to strategically acquire talent.
Despite a slow start to M&A activity in 2018 within the sector, the underlying fundamentals fueling growth remain strong with continued demand for housing, addressing long-delayed infrastructure improvements and new investment. As the year plays out it remains to be seen how much an impact the current trade tensions have in reigning in otherwise strong underlying fundamentals in the sector.
“M&A activity in Q2 increased versus Q1 despite a decrease in deal volume over that period. While current underlying sector fundamentals remain strong (e.g., US corporate tax reform, buoyant housing), trade policy actions between the US and key trading partners, will likely weigh on M&A activity as the year plays out."